Bishnu Poudel as finance minister is the wrong man at the wrong place at the wrong time, observers sayWith no background in economics, Poudel, general secretary of the ruling Nepal Communist Party, faces a host of challenges as he has been asked to lead the Finance Ministry in an economy ravaged by the pandemic.
When Bishnu Poudel became finance minister back in October 2015, he was facing an economy badly affected by the earthquakes and the Indian trade blockade. In his second stint, the ruling party general secretary is facing even a bigger economic crisis caused by the coronavirus pandemic.
Prime Minister KP Sharma Oli appointed Poudel to the Finance Ministry on October 14. It, however, has become apparent by now that the decision was not taken by the prime minister in view of the challenges facing the country’s economy. Poudel’s appointment as finance minister was largely guided by the internal politics that is being played out in the ruling party.
With the country facing an extraordinary situation, questions are now being asked if the prime minister made the right choice by picking Poudel for the crucial responsibility.
“I have not heard him talking about any economic vision for the country–either in his speeches or writing,” said Hari Roka, an analyst on political economy. “Therefore, questions remain if he is the right choice to take the country’s economy forward.”
The country’s economy has suffered badly from the pandemic, with the World Bank, earlier this month, estimating that growth in the current fiscal year would be 0.6 percent and could get as low as 0.2 percent.
Poudel succeeds Yubaraj Khatiwada, who was a technocrat with a doctorate in monetary economics. Poudel, on the other hand, is a politician with no higher academic degree.
As finance minister in 2015-16, when Oli was also in his first stint as prime minister of a coalition government, Poudel had, by and large, implemented the budget announced by Ram Sharan Mahat, a Nepali Congress leader and six-time finance minister.
Even though Poudel presented the budget for the fiscal year 2016-17, he was no longer there to implement his own budget, as the Oli Cabinet was replaced by a Maoist-Congress coalition government in August 2016 when Pushpa Kamal Dahal became the prime minister.
Poudel is a longtime close ally of Prime Minister Oli and has also developed good rapport with Dahal, who is now the executive chair of the Nepal Communist Party (NCP), was chosen to lead the ministry given his role in settling intra-party differences, according to party insiders.
“Poudel seems to have made a very much profitable deal in exchange for agreeing on the provincial capital,” said Chakrapani Khanal, a Standing Committee member of the ruling party. “As far as I know, Dahal had given a nod to his entry as a minister in the Oli Cabinet.”
Despite coming from Rupandehi, Poudel, according to insiders, played an instrumental role in settling the dispute over the Province 5 (now Lumbini) capital for Deukhuri. Poudel, otherwise, was bent on making Butwal the provincial capital. Insiders say Poudel gave up on that demand so as to ease pressure on both Oli and Dahal.
“Poudel’s political future was thrown into uncertainty after he agreed to lose Butwal as the provincial capital as per the wish of Oli,” said Roka. “Now Oli has rewarded him by appointing him the finance minister. So the move is guided more by internal political management than the nation’s needs.”
But Poudel has a day job as the country’s finance minister and the challenges he faces are immense, economists say.
The pandemic-induced lockdown and prohibitory orders have already resulted in massive closure of businesses with widespread job losses. The government has not been able to generate enough resources, while there is a growing call for support for people and sectors badly affected by the pandemic.
The four-month-long lockdown imposed to prevent the spread of Covid-19 forced 61 percent of businesses to close down completely, causing a dire effect on the economy by rendering tens of thousands of people jobless and disrupting the production and supply chain, according to a survey released by the Nepal Rastra Bank in August.
The survey shows that 22.5 percent of employees were laid off by businesses of the manufacturing and service sectors. Two-thirds of the laid-off employees were either working on a contract basis or were hired temporarily.
On the other hand, the government’s revenue collection has not been enough even to meet its administrative costs.
According to the Financial Comptroller General Office, the government agency which keeps account of the government’s incomes and expenditures, the government collected a revenue of Rs172.37 billion till October 17, the first three months of the fiscal year. But, during the same period, the country’s recurrent expenditure, without taking capital expenditure into account, stood at Rs182.85 billion.
“Resource generation amid challenging circumstances to meet resources needed for health facilities, implementing development projects and supporting the sectors hit by Covid-19 is one of his biggest challenges,” said economist Govinda Nepal.
Sectors like tourism, aviation; micro, small and medium enterprises; and the transport sector suffered badly. Informal sector jobs have also been lost amid reduced economic activities.
“Poudel’s first priority should be finding ways to prevent the country from facing an unprecedented humanitarian and economic crisis,” said Poshraj Pandey, another economist and former member of the National Planning Commission.
Even the performance of Khatiwada, a technocrat who had served as vice-chairman of the planning commission and governor of Nepal Rastra Bank, the central bank, as finance minister was widely questioned because of the economic downturn even before the pandemic.
Poudel’s record as finance minister in the past doesn't seem to be promising.
Under Poudel’s watch, the economy witnessed a growth of just 0.2 percent in the fiscal year 2015-16 but it grew by 7.74 percent the following year when he presented the budget but was no longer the finance minister to implement it.
The situation is much worse now and there seems to be no silver lining on the horizon.
Economist Bishow Poudel also thinks besides generating enough resources to contain the economic devastation caused by the pandemic, boosting consumer confidence and supporting the sectors badly affected by the coronavirus are major challenges for Minister Poudel.
“Saving resources from unnecessary expenditure is another challenge,” he said.
According to the Finance Ministry, revenue collection was badly affected due to the lockdown imposed to prevent the spread of the coronavirus on March 24.
The size of the revenue against the gross domestic product last fiscal year declined after witnessing an ascending trend for 10 years, according to the ministry. Revenue generation last fiscal year was 21.07 percent of the GDP, down from 23.99 percent of GDP in the previous fiscal, the ministry said.
But politicians and experts say the government does not appear to be inclined to reduce unnecessary administrative expenditure.
“The Public Expenditure Review Commission led by Dilli Raj Khanal recommended a number of measures to reduce administrative expenditure including shutting down various government offices. But the government has not taken any step towards that direction,” said former finance minister and Nepali Congress leader Ram Sharan Mahat.
“Even during such a crisis, a lot of reports about misuse of funds are appearing.”
Mahat said that given the limited resources, the government needs to halt populist measures. A year after Mahat increased the allowance for elderly people to Rs1,000 per month from Rs500 in 2015, Poudel had again doubled the allowance in the following fiscal year. It is now Rs 3,000 a month.
Despite facing criticism for failing to take the private sector on board during his tenure as finance minister, Khatiwada had been able to generate a good amount of external assistance given his rapport with donors.
As the country is in greater need of external resources, Poudel will also be judged on whether he will be able to generate required resources when revenue collection is shrinking.
Economist Pandey suggested that the government needs to reduce facilities enjoyed by the lawmakers and those holding constitutional posts, suspending the lawmaker-led Local Infrastructure Development Partnership Programme and controlling corruption.
“In extraordinary situations, extraordinary measures are necessary,” he said.
But politics has its own part to play.
“It is difficult to scrap the parliamentarians’ fund but they can agree to transfer some of it to the Covid fund,” said Khanal of the ruling party.
Meanwhile, the private sector has its own gripes.
Even though the government and the Nepal Rastra Bank announced support measures such as extending the deadline for paying taxes, loan instalments and providing interest subsidies, businessmen and economists say that is not enough considering the massive impact the coronavirus has had on businesses and jobs.
“The government particularly needs to support the small and medium enterprises with capital injection,” said Pashupati Murarka, former president of Federation of Nepalese Chambers of Commerce and Industry, the apex private sector body. “Just interest subsidy and extension of deadlines to pay loan instalments won’t help much.”
According to a study released by the International Financial Corporation (IFC) last month, over 80 percent of micro, small and medium enterprises suffered a slump in sales during the lockdown. Earlier in August, in a central bank survey 95 percent of small and cottage industries had said that their business had gone down by over 73 percent.
Micro, small and medium enterprises contribute 22 percent to Nepal's gross domestic product and employ about 1.75 million people, according to the IFC.
“Considering the major impact on the micro, small and medium enterprises compared to bigger ones, there should be justified support for both sectors from the government,” said economist Poudel.
One of the complaints of the private sector about the former finance minister Khatiwada had been that he didn’t listen to the sector and acted alone and focussed more on collecting revenue. Many thought that being a technocrat, Khatiwada didn’t have the tendency to listen to the grievances of the private sector.
But with a seasoned politician now at the helm of the Finance Ministry, experts say he might be more receptive to the complaints.
“His relative strength is that he is a politician and he is expected to present himself with a flexible attitude,” said economist Poudel.
But being a politician and the attendant flexibility it brings may not be enough in these testing times, according to Roka, the political economist.
“It is an extraordinary situation and having someone with little knowledge about the economy is not the right choice,” Roka said.